UAE non-oil activity dips, but rebound imminent
Growth in non-oil private sector business activity slowed from July.
As the UAE witnessed the steepest job cuts in recent history, output growth at non-oil firms dropped to a three-month low in August, but a rebound is on the horizon.
The latest Purchasing Managers' Index (PMI) data showed that growth in non-oil private sector business activity slowed from July and was marginal, as sales rose solidly but were supported by the quickest drop in output charges since the end of 2019.
The IHS Markit UAE PMI fell below the 50.0 mark separating growth from contraction in August. At 49.4, down from 50.8 in July, the headline index signalled a slight deterioration in business conditions, ending a two-month sequence of growth.
David Owen, economist at IHS Markit, said while business activity expanded for the third month in a row in August, jobs data imprinted fresh concerns for the UAE non-oil private sector economy.
"The PMI Employment Index fell to its lowest in over 11 years of data collection, signalling a sharp fall in workforces as firms shed excess capacity and clamped down on employee costs. For most businesses, job cuts allowed them to remain in step with the muted economic recovery after lockdown, as demand growth failed to gain further momentum," said Owen.
He said activity was again projected to rise, but only tentatively, as business sentiment dropped to its lowest on record. As such, firms reduced selling charges sharply in order to remain competitive amid an uncertain future.
In August, firms reported a solid upturn in new business inflows, which was primarily down to higher domestic spending as export sales declined for the second month in a row.
"However, rising levels of demand in part reflected steeper price discounting. Output charge deflation reached its strongest pace since December 2019, as businesses made further efforts to recover sales lost during the Covid-19 lockdown. Business activity, meanwhile, rose for the third successive month, although the rate of expansion slowed to just a marginal pace," the report said.
In Saudi Arabia, the latest PMI data signalled a renewed decline in business conditions in August. After stabilising in July, the economy fell back into a downturn as firms registered a solid drop in new business, in part linked to the rise in VAT charges and ongoing social distancing measures. Business activity and employment both declined, while the tax rate change led to the sharpest rise in output charges for 11 years, IHS said.
Owen said the newly-imposed VAT changes stalled consumer spending across the Saudi economy in August. New business was down from July, as several firms commented that the sharp uptick in prices kept some customers away from markets.
"The lasting effects of the Covid-19 crisis were also apparent, with plenty of businesses noting that consumer confidence remained weak despite efforts to reopen the economy. Some areas saw an improvement though, especially with firms highlighting a pick-up in tourism. Business confidence strengthened to its highest for six months while inventories also expanded, suggesting there are positive signs for future growth," said Owen.
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